GAO Tanker Decision: What Analysts Are Saying

Analysts were surprised, at least a little, that Boeing won its challenge alleging the Air Force was wrong in awarding the $35 billion tanker contract to Northrop Grumman /EADS.

They were almost as surprised as they were back in February when Northrop initially won the contract.

Here are parts of interviews I conducted this afternoon with Howard Rubel of Jefferies and Carter Copeland at Lehman.

Rubel says the Air Force cannot ignore this decision, "not in this rarified political environment." He says the unusually high number of problems the GAO found with the Air Force's decision-making process is "more than enough to kick this thing back to being reprocured."

He called the number of issues "remarkable." "Maybe the one that's most surprising was that the Air Force kind of was a little duplicitous with some of its conversations with Northrop and Boeing, kind of telling one guy one thing and telling the other folks something else, according to the GAO."

He believes its possible the Air Force will eventually end up making a split buy, especially if that helps it get the tankers sooner. "I mean, the Air Force needs these things right away." He says one of the problems with the original deicsion is that by the time the Air Force would bid for a second round of tankers, "Boeing wouldn't have been around to compete...I think that this will make for a more thoughtful, competitive situation." Especially with new management at the Air Force.

Finally, Rubel says a tanker win was worth about $2 a share for Boeing, $4 a share for Northrop Grumman, but he thinks neither stock has the tanker built in at the moment. He gives Boeing credit for fighting and "having the courage of its convictions to push a customer, even though on the appearance of it, it might have been bad business. It looks in the end like it was good business."

Meantime, Carter Copeland at Lehman Brothers is maintaining is "equal weight" on Northrop Grumman stock and "Overweight" on Boeing. He says the GAO just didn't buy into the way the Air Force measured the two tankers against each other, a tough process in which you're trying to figure out how two planes with two different capabilities stack up objectively. He says, though, that he was surprised by today's reversal. "In the initial offering process, most of the estimates on the street and consensus was that Boeing was an 80-20, or a 90-10 favorite to win the thing," Copeland told me. "And similarly, now I would've told you that there was an 80-20 feeling that Northrop and EADS would keep it. So we certainly have been surprised by both offerings and I think you can see that in the reaction by both of the stocks."

He says he can't make any adjustments to earnings estimates until we hear from the Air Force in the next 60 days. That's how long it has to decide whether to either a) ignore the GAO (unlikely), b) rebid the tanker under the current set of rules, which need to be adjusted, or c) start all over with new rules. "I think the way the market looks at this," Copeland says, "it's far more likely that things have now shifted in Boeing's favor, and that's probably the right conclusion."

Boeing, Northrop & the Air Force

The GAO recommended that the Air Force reopen its contract discussions, reports CNBC's Jane Wells.

Analyst On Boeing

CNBC's Jane Wells reports on what analysts are saying about the GAO's tanker decision, with Carter Copeland at Lehman.

Carter Copeland at Lehman on tanker decision.

Boeing Tanker Decision

CNBC's Jane Wells reports on what analysts are saying about the GAO's tanker decision, with Howard Rubel of Jefferies.